Language and Inflation

Abstract

Macroeconomic controversy is largely a tale of three cities ± Chicago and the two Cambridges ± or more accurately a tale of the cultures and policy prescriptions associated with those cities. In the four decades between the General Theory and the monetarist counter-revolution, economists were ‘normally’ distributed around orthodoxy (the Keynesian Neoclassical Synthesis, the ISLM model, etc.) with the Chicago version of the Quantity Theory two standard deviations from the mean in the right tail, and the ‘true believers’ in Cambridge, England an equal distance from the mean in the left tail. The preferred method of orthodox research involved ‘formalist’ tools (a label that can be stretched to include econometrics and Walrasian equations). Penetrating the veil of macroeconomics reveals some successful language revolutions at work.¹